Fail-Safe Investing with Harry Browne

For anyone who has read any of my investment advice, you probably know that I advocate setting up a permanent portfolio similar to what is described by Harry Browne in the book Fail-Safe Investing.

Harry Browne passed away in 2006.  I was lucky enough to meet him in person before he left us.  He was very influential for me in both political (libertarian) philosophy and investment philosophy.

While the best part of his book Fail-Safe Investing is the description of the permanent portfolio, I would like to emphasize that there are other key basic points in this book that should not be overlooked.  Some of them are seemingly obvious, yet it is surprising how many people violate these simple things.

He breaks the book into 2 parts.  The first part is “The 17 Simple Rules of Financial Safety”.  The second part is “More about the Rules”, in which he goes more into depth.

Here are just a few of the rules, although they are all important in some way.

  • Rule #1: Build Your Wealth upon Your Career
  • Rule #3: Recognize the Difference between Investing and Speculating
  • Rule #4: Beware of Fortune Tellers
  • Rule #9: Do Only What You Understand
  • Rule #17: Whenever You’re in Doubt, Err on the Side of Safety

His most important, of course, is Rule #11: Build a Bulletproof Portfolio for Protection.  This is where he describes the permanent portfolio and the importance of diversification to protect your investments in any economic environment.

Browne stresses throughout the book that you should not invest in anything that you don’t understand, and that you should only speculate with money you can afford to lose.  He also makes the point – which most investors don’t want to hear – that most of your wealth will be gained from your career.  You probably aren’t going to get rich by investing.

In Rule #4: Beware of Fortune Tellers, Browne is essentially invoking Austrian economics, even though he doesn’t call it this.  He is recognizing that economics is based on human action.  Human action will determine which investments go up and down.  It is the decisions of millions of people every day that drive the markets.

As Browne states in his book, “The beginning of investment wisdom is the realization that we live in an uncertain world – and that no one can eliminate the uncertainty for you.”

This is particularly interesting because Browne first gained notoriety by correctly predicting the devaluation of the dollar in the early 1970s.  While he said that he basically got lucky in this prediction, I think he did have a good understanding of central banking and the financial markets, and his prediction was nothing more than a good prediction of human action – in this case, that politicians would continue to spend money and run up deficits.  There was no way the U.S. could continue to keep the dollar on an international gold standard.

While Harry Browne was an optimist in general – he said that human nature was on the side of liberty – he perhaps underestimated the powerful arguments to be made against central banking.  He did not think that talking about the Federal Reserve to non-libertarians was a good way to persuade them towards a more libertarian position.  Ron Paul showed otherwise in 2007 when his opposition to the Fed was one of his main positions that he emphasized (probably second to foreign policy).  Ron Paul ended up going to rallies with chants of “End the Fed.”

When Harry Browne made his predictions against the U.S. dollar, he wrote a book titled How You Can Profit From the Coming Devaluation. The second half of the book may not be timely, but it is still an interesting read.  The first 70 pages are just as relevant today as they were then.  It is a great explanation of money.  If only these 70 pages were read by high school students.

Browne went on to write several investment books, as well as a couple of libertarian books, and a self-help book.  In terms of investment books, I would still start with Fail-Safe Investing.  They are simple but important rules, and it describes the permanent portfolio that I believe is so important for wealth preservation.

Is Bitcoin in a Bubble?

The price of one bitcoin is currently trading just over $2,000 after a wild week of ups and downs.  It was more ups than downs though.

The price of one bitcoin reached $1,000 at the beginning of 2017.  It went above and below the $1,000 mark a few times.  It was just a couple of months ago that the price of one bitcoin was trading below $1,000.  It has more than doubled in a couple of months.

Of course, when we talk about the price of Bitcoin, we are talking about the price in U.S. dollars.  I have been quick to point out that Bitcoin is not money, as it is not widely desired.  I still challenge anyone to walk into a Walmart or their local grocery store and try to pay with bitcoins.

I understand that there are a few online retailers who will accept Bitcoin, and there are even some charities and institutes that will be more than happy to accept donations in Bitcoin.  But the point is that it is not widely recognized as money.

In the last week, it was easy to hear owners of bitcoins say that their bitcoins are gaining value.  If the price of bitcoins were to fall, would you hear holders of dollars cheer in the fact that their dollars were gaining value?  Do you see the point here.  The only reason that owners of bitcoins are excited is because the per dollar value has increased.  It is still dollars that serve as money, whether you like it or not.  It is dollars that serve as our basis for judgement.

I still do not see Bitcoin serving as a main form of money in the future.  I can understand why someone in Venezuela might want to convert his wealth into Bitcoin.  I would certainly take my chances with Bitcoin over the Venezuelan bolivar.

Bitcoin has some qualities of being a good form of money, but it also has some bad qualities.  It is similar to any fiat currency in the fact that it is basically worthless if not for the fact that it is considered, at least by some, to be a form of money or a potential form of money in the future.

You can’t say the same thing about gold.  Gold is used in jewelry and for some industrial purposes.  Gold has the characteristics of a form of money.  It is why the market chose gold (and to a lesser extent silver) as a form of money thousands of years ago.

This isn’t to say that you can’t make money (U.S. dollars) with Bitcoin as a speculation.  But this doesn’t make it money.  You could have also made money buying stock in Amazon.  This doesn’t make Amazon stock a form of money.

The key here is that you have to convert your speculation back into U.S. dollars to make it useful in most cases.  You can spend your U.S. dollars almost anywhere.

The Bitcoin market isn’t for me right now, but that’s not to say it won’t go higher (in terms of U.S. dollars).  It is a speculation.

I do think Bitcoin is a bubble.  I think the whole idea is a bubble.  I would be very surprised if Bitcoin was worth anything of any significance 20 years from now.  In the long term, I expect gold to beat Bitcoin as a form of money.  Gold has the characteristics of money, and it also has thousands of years of history on its side.

Just to clarify, although Bitcoin is probably a bubble investment, it doesn’t mean it can’t go higher.  It doesn’t mean it can’t go significantly higher before falling.  That is one of the marks of a bubble.  Things go up far beyond what is rational.  It becomes a mania.

I have no opinion on what the price of a bitcoin will be next week or one year from now.  It is a game for gamblers.  I have nothing against gambling if you are taking calculated risks with money you can afford to lose.  I just suggest that you not rationalize your speculation by saying that Bitcoin is the money of the future.

The Best and Worst Investments

What is the best investment that you can make at an early age?

Before I answer this, allow me to give a little background of my own history.  I had my share of risk taking in my younger years.  I am much more conservative now, although I still like to dabble in mining stocks.

I advocate a permanent portfolio for relative safety.  Preservation of wealth should be your main goal unless you are swinging for the fences.  Even if you are swinging for the fences, it is still better to have some money tucked away that is secure.

The worst investments I ever made were in options.  At least I never bought futures.  With options, you are at least limited in your losses. I had some success with options early on, but ended up losing money.  It was my own swing for the fences.

I have traded individual stocks over the years, but there is nothing that really sticks out.  I have had winners and losers, just like anyone else who trades individual stocks.  I bought Groupon early on, and that has been a loser.  I bought a few ETFs that I held onto too long after the financial crisis and stock crash back in 2008/ 2009.

My biggest fault in trading individual stocks was the fact that I sold my winners too soon.  I bought Amazon in the late 1990s, but I was in and out.  If I had held onto it, I would be up by 10 times now.  Of course, that would have been over the course of over 17 years.

I also bought Apple in the 2000s.  I sold it for a decent gain, but I would have made much more if I had held the stock.

I had a good run with some mutual funds that invested in mining stocks before they turned down around 2011.  I have had some losses since then, so it is hard to brag too much about the gains.  You have to count both sides.

There are two things I consider my best investments.  The first was buying gold around the year 2000.  Even with the gold price significantly off its all-time high, I am still up about 4 times the nominal dollar investment.  I first bought when it was around $300 per ounce.

The second best investment was putting some extra money into the principal amount of my mortgage.  This was over a decade ago.  At that time, the rate was near 5%.  When you can get a tax-free rate of return that is guaranteed at near 5%, you should almost always take it.

There is one investment I didn’t make when I was young that I wish I had made.  This may sound cliché, but I wish I had invested more in myself or in some kind of side business.

When I think of the opportunities missed, especially in the beginning era of the Internet, it makes my head spin.  When I was swinging for the fences with options, I should have been using that money to try different side businesses.  Sometimes it is worth taking a thousand dollars and just trying something to see if it takes off.  If I had done that once per year for five years, I think something would have stuck.

The first question of this post asked: What is the best investment that you can make at an early age?

My answer is that the best investment is investing in yourself.  Actually, this probably applies to almost any age.

If you can gain valuable skills, learn the ins and outs of a particular business, learn how to build a web site, learn how to build an app, learn how to write copy, learn how to market your products, etc., then you will be set.  You will likely make more money from these skills than you could ever hope to make with traditional investments.

I still focus on financial investments and helping others because I think it is important to preserve the wealth you have already accumulated.  But your income minus your expenses (your savings) is going to determine a lot about your wealth.  It is likely going to matter a lot more than your financial investments.

I think a lot of people waste money paying financial advisors.  I think a lot of people also take unnecessary risks in the stock market that could end up really hurting their net worth.  This is why I recommend a permanent portfolio for simplicity and relative safety.

The lesson here is: Invest in yourself.  This isn’t what most people want to hear, but they should take the advice.  For your actual savings, I recommend keeping a majority of it safe and sound, or at least as safe and sound as is possible in this uncertain world.

Experiences vs. Material Things

Would you rather take a nice vacation or get a nicer car to drive?  Would you rather spend a day kayaking with your family, or would you rather have a new outfit to wear?  Would you rather go to a concert to listen to your favorite musician, or would you rather have a new set of dishes for your kitchen?

These aren’t always easy questions to answer, and different people obviously have different tastes.  It can also depend on your situation.  If your kitchen dishes are really old, maybe that is a legitimate need/ want.

We have a lot of financial choices to make throughout our life.  We have to figure out how much to spend and how much to save.  We have to figure out the trade off between work and leisure time.  And for the money we do spend, we have to decide on our highest priorities.

When I was much younger, I had a preference for material things over experiences.  This isn’t to say that I was a spendthrift.  I typically had a preference of having money saved over having material things.

As I have gotten older, I tend to favor experiences over material things, unless those material things are going to make me happier on an almost daily basis.

There are some material things – if you want to call them that – that are basically non-negotiable for me.  Maybe need is a strong word, but I really have to have my computer and iPhone.  Aside from being somewhat of a necessity for doing work, I also use them for pleasure.  Combined, I use them for several hours virtually every day of my life.

There are other material things that may be somewhat of a luxury but still provide enjoyment or make my life a little bit easier.

There are also things that are mostly a necessity, but upgrades are optional.  I don’t need to drive a fancy car just so I can have leather seats and some extra gadgets on the dashboard.  It isn’t worth thousands of dollars extra to me.  I do enjoy my wireless bluetooth because I can listen to podcasts in my car through my phone.  But that is just about a standard feature in most new cars now.

I used to think that if I was going to spend money, that it is better to buy something so that it can last for a while.  If you take a vacation or do something for a few day, then you have nothing to show for it after it is done.  If you buy a material thing, then you will still have it after the week is over.

I realize now I was wrong in this way of thinking because you do have something after a vacation or some kind of experience.  You have memories.  I still remember the really big vacations I took as a kid when I was a young teenager.  I don’t have as many memories of the toys I had, although I do have fond memories of a few of them.

I can see the wanting of material things now with my own kids.  They have more than enough stuff.  But I find that most of it is not used in a given day.  They have enough stuff that they would probably find it difficult to have the time to use everything in a given day.  To be fair, my son has a lot of legos, but he did have the experience of building them.

Perhaps there is something of the Pareto principle at work here.  For my kids, 20% of their toys are played with 80% of the time.

To be fair to them, they get Christmas and birthday gifts from extended family.  When they buy something, it is usually from money they received as a gift or from money they earned doing something.

My kids usually get one night out for dinner on the weekend and one treat (like a lunch) during the week.  If my daughter has her own money to spend, sometimes she will buy food or a special drink that we would not normally buy at the grocery store.  I am ok with her doing that.  If she bought more “stuff”, it would just add to the clutter in our house.

It is tough finding a good balance between saving and spending.  Unfortunately, since government at all levels takes almost half of our income, there isn’t as much to save as there should be.  This is why most middle class Americans barely save any money.

If you are able to save some money, and you do have some discretionary spending money that is not going to your necessities, you will also have to find a balance between material things and experiences.  For me, the big test is whether you can enjoy your material purchase every day.  If you aren’t going to enjoy it daily, or at least on a somewhat regular basis, then you probably shouldn’t buy it.  You don’t need to spend money on something that is just going to sit there and add to the clutter.  Instead, buy an experience where you can have memories of fun activities with family or friends.

Will Trump Make It 4 Years as President?

This past week was a particularly bad one for Donald Trump and his administration.  While the establishment media has been hammering on him almost daily since mid-2015, it seems that a few things are really starting to stick.

Trump is not without blame on this.  He, and others around him, have handled several things poorly.  He has been stumbling a lot.

Trump never should have surrounded himself by a bunch of Republican hacks and war hawks (I repeat myself).  He hired some war generals for his cabinet and, surprise, they promote the idea of war and intervention.

And maybe having Mike Pence as a running mate was a political tactic to get elected, but it makes it that much easier for the establishment (including Republicans) to try to take down Trump.  If they can get Trump out of there, then they will have Pence in there who will not make any significant waves.

The establishment media is mostly lying.  All of these stories about Russia are lies.  Just because some anonymous source at the CIA says something, it doesn’t make it true.  You could have a non-anonymous source with the CIA say something, and it still probably isn’t true.  These are lies comparable to weapons of mass destruction.  They are for slightly different purposes in that the Russia lies are to knock down Trump.  A secondary reason is to keep tensions with Russia high.

As far as Trump’s firing of Comey, it was probably handled clumsily by Trump and his administration.  It is a joke that the media and the left are going after Trump on this when Comey was a hated man just prior to the election, and also after the election.  No matter who you were rooting for, it was obvious that Comey was playing political games.  As for any notes that Comey took after meeting with Trump, they should not be trusted at all.  We can be certain that Comey is a liar and a criminal.  It would be difficult for someone to head up the FBI who doesn’t fit these descriptions.

Trump is getting a brutal lesson in politics.  It is hard to believe, but I really think he was rather naive entering this whole thing.  Did he really think he could question the U.S. empire overseas and bring an “America First” message and not be treated this way?

At this point, whenever the establishment media discusses politics (and Trump in particular), you can assume that just about the opposite is true.  They will cheer Trump when he bombs Syria or threatens war with Iran or North Korea.  But for anything else that would dismantle power in Washington DC, he will be raked over the coals.

The media has gone crazy over Steve Bannon, calling him a white supremacist and everything else in the past.  From this, you can assume that Bannon is probably one of the few good guys.  I don’t agree with some of what Bannon stands for, but I think he was one of the few people Trump could have trusted.  Meanwhile, he is one of the people who has been pushed down in power and influence.  The war hawks didn’t like his message of “America First” because it means the U.S. government would have to mind its own business and stop intervening all over the world.

I am not sure that Trump is going to survive the next 4 years.  In the past, I have made comparisons between Trump and Kennedy.  We know what happened to Kennedy.  I think the establishment would prefer to get rid of Trump in a different way.  Kennedy didn’t have the media against him like Trump does.  If they can impeach Trump or force him to resign, they will do it in a heartbeat.  They would prefer that method.

And many of his Republican “friends” will stab him in the back too.  You can bet that Paul Ryan, Reince Priebus, and many other establishment Republicans who are currently “working with” Trump will turn on him in an instant.

Trump’s agenda is out the window.  Obamacare is not getting repealed.  There will be no wall with Mexico (which is positive from my libertarian point of view).  There will be no extensive tariffs (again, this is good).  We may see some tax “cuts”, but they will be smaller than expected and probably revenue neutral, meaning they will just rearrange who is paying the taxes.

For Trump to survive the presidency, he has only one option.  He has to do what got him there in the first place.  He can’t just place nice with the establishment, which includes all of the spy agencies.  He has to stand firm, and he has to take his message to the American people directly.

This doesn’t just mean sending out messages on Twitter.  He should start giving a televised address in primetime once a week if he has to.  He needs to be direct and say that the media is telling lies about Russia.  He needs to stand up for himself without coming across as needy.  He needs to be firm and direct.  He should call on his supporters to write their so-called representatives to enact his agenda of tax cuts, spending cuts, regulation cuts, and less military intervention.  Of course, we don’t know if he actually believes in these things because he flip-flops so much.

In his first debate with Hillary Clinton, Trump came out in a passive way.  He got low marks.  At that point, it looked as if he was defeated.  In the second debate, he came out swinging.  He said he would prosecute Hillary (which didn’t happen), but he came out strong.  If he has any hope of surviving the next almost 4 years in Washington DC, he is going to have to be strong.  He has to take his message directly to the people and ask for their support.

Trump’s presidency has been useful for many great lessons for liberty advocates.

First, it doesn’t make much difference who gets elected president.  Second, if you do not have a very firm set of principles (which most people don’t), then Washington DC will quickly eat you up.  Third, the establishment media lies about almost everything political (although that should have already been obvious).  Fourth, a good portion of the American people are fed up with the status quo.  Five, being direct and unscripted can actually get you elected.

I do not really feel sorry for Trump.  His overconfidence got him in over his head.  The next few years, if not the next few months, will be entertaining to watch.  Trump may go down in flames.  But that will not stop the disaffection of the American middle class.


Is Your Portfolio Ready for a Stock Market Crash?

As I write this, the stock market just finished its worst day in a long while. The Dow had its worst day in 8 months, falling over 370 points.  The S&P 500 had a comparable loss in percentage terms, and the Nasdaq was even worse.  Meanwhile, gold spiked up, and bond yields declined significantly.

The market decline was attributed to the latest news about Trump and his firing of Comey.  Of course, whenever the market moves significantly, there are always reasons given by the financial media.  We never really know for sure what drove prices up or down.  It could just be that more people woke up this morning wanting to sell stocks as compared to those who wanted to buy stocks.

In libertarian circles, many are warning of a stock market crash.  I have been one to caution of a possible crash, but I do not say it is imminent.  I understand how hard it is to time the market.

There is a quote attributed to John Maynard Keynes: “Markets can remain irrational longer than you can remain solvent.”

While I am mostly a critic of Keynes, he was right on the mark with this quote if he said it.  Regardless, it is something to heed.

The big question isn’t whether a stock market crash is imminent.  We can ask the question, but nobody really knows.  You don’t know how millions of people are going to act every day.

The big questions to be asked are as follows:

  1. Is the scenario of an imminent market crash plausible?  In other words, is there a decent chance that it could happen?
  2. If it is plausible, are you prepared for such an event?

I learned about the permanent portfolio from Harry Browne.  He was an advocate of protecting your wealth that you cannot easily afford to lose.  In his last few years of life, he also hosted a money show.  Whenever someone would ask him about some article or speech that they heard talking about some terrible event that was going to happen (dollar crisis, stock market crash, hyperinflation, spiking interest rates, etc.), Harry was always quick to turn the question around.

Instead of asking whether it is going to happen, ask yourself if you are prepared if it does happen.  That is why he favored a permanent portfolio.  It was meant to protect your financial assets in virtually any economic environment, or at least as well as anything that is out there.

I have been cautioning for a while that stocks could take a beating.  It seems that they are in a bubble, but we don’t know how long the bubble will last.

So what if this big drop in stocks is the beginning of a new bear market?  If that is the case, will you sleep ok at night?  Will you know that you can wake up the next morning and not worry too much about your portfolio?  Is it going to set you years back in your retirement if there is a crash?

The title of this post is, “Is Your Portfolio Ready for a Stock Market Crash?”  I cannot answer this question.  This is a question that each individual has to answer for themselves.  But it is a very important question to ask.

I would encourage you to ask this question about any somewhat likely event.

  • Is your portfolio ready for a default by the U.S. government?
  • Is your portfolio ready for severe price inflation?
  • Is your portfolio ready for rising interest rates?
  • Is your portfolio ready for a deflationary depression?
  • Is your portfolio ready for another financial crisis?

I avoid such scenarios as nuclear war and volcanic eruptions, not because they are impossible, but because it is so hard to prepare.  But even with these scenarios, your investment choices could make a difference if you are not directly impacted by these events.

Look at your portfolio, and look at where you are most vulnerable.  Ask yourself if you are comfortable with your investments given different scenarios.  If you prepare, it can help you sleep better at night when events unfold.

Median Year-Over-Year CPI Slightly Down for April 2017

The latest consumer price index (CPI) numbers came in for April 2017.  Consumer prices, while still increasing, are slightly down when measuring over the last 12 months.

The CPI for April came in at 0.2% after being negative in March.  The year-over-year CPI fell slightly to 2.2%.

The more stable (and probably reliable) median CPI came in at 0.1% for April.  The year-over-year median CPI, after being at 2.5% for the last 5 months, came in slightly lower at 2.4%.

The consumer price index does not seem to do a good job of factoring costs that eat up a good portion of a typical family budget.  For example, health insurance is a huge burden on the average American family.  While it is not strictly monetary policy that has driven health insurance premiums and medical care costs higher, it is also not monetary policy that has driven down the price of electronics.  Technology gets cheaper in spite of monetary policy.

In some sense, Americans (and the rest of the planet) have never had it so good.  We have smartphones, virtually endless food, and many luxuries that simply didn’t exist just a few decades ago.  Yet, at the same time, the American middle class is struggling to pay the bills for basic expenses, albeit upgraded basics.

In a true free market economy, our living standards would continually go up.  We would find our basic expenses decreasing, coupled with more choices, more leisure time, and greater luxuries.

While I don’t think the CPI is a good measure of the state of the average American family, it is useful.  It may not even be that accurate in terms of measuring actual price inflation.  However, it does show us trends, and it can also signal upcoming economic events.

Some think the economy is doing well because price inflation is relatively low while stocks are booming.  Of course, this was also the situation in the late 1920s, and we know how that turned out.  The slightly decelerating CPI may be a sign that our current mini-boom is about to slow down.  Stocks may be the last thing to go.

It is almost impossible to predict when a recession will hit.  We just have to know that the likelihood is relatively high at this point, and your career and your investment portfolio should reflect this risk.  This is why I recommend a permanent portfolio.

While many libertarians have warned of rising interest rates for a long time, I have been very cautious on this front.  While I think the federal government is a total mess, I recognize that most investors still regard U.S. government debt as an investment safe haven.  Unless there is a significant fear of high price inflation (which there isn’t right now), then investors will buy U.S. Treasuries and bonds, if and when a recession hits.

Therefore, I expect that interest rates will go lower before they go significantly higher.  The time to get out of U.S. government bonds (or short them) will be after the recession hits and interest rates (particularly long-term interest rates) are driven lower.

I still like gold for the long term.  It is harder to predict for the short term.  A recession may bring the dollar price of gold down for a short period of time, but I would expect it to recover quickly with announcements of easier money by the Fed.

In conclusion, the CPI hasn’t changed much, but it is slightly lower year-over-year.  If it decelerates more, we should really throw up the caution flag.

While stable or declining consumer prices are generally a benefit to consumers, in our world of central banking today it can also be a signal of a deflating bubble.  If we see a bubble that pops, I think stocks will be hit the hardest.

Should You Pay Down Your Car Loan?

For anyone who is deeply interested in finance and money management, you have probably heard the debate before about whether someone should pay off or pay down their mortgage.  I actually wrote a brief special report on this subject several years ago.

But we don’t often hear any discussion about whether you should pay down or pay off your car loan.  Since most people take on debt when buying a car, this is a valid question.

It is reported that Americans are now in over $1 trillion of car debt.  This could be the sign of another bubble, but only time will tell for sure.

There are many debates about buying cars.  There are debates about buying new vs. buy used.  There are debates about buying vs. leasing.  There are debates about whether to take on any debt at all to buy a car.

I don’t think there is any one good answer to any of these questions.  It often depends on someone’s situation.

While it seems to be smarter financially to buy used instead of new, I don’t think that is as true as it used to be.  Sometimes slightly used cars are not as heavily discounted as in the past.  If you are going to drive a car for a long time, it may make sense to buy new.  Plus, if your time is very valuable (which hopefully it is), you do want something that is reliable and doesn’t require a lot of maintenance.

In terms of buying and leasing, I think it typically makes sense to buy, but again, it depends on the situation.  There are times when it can make sense for someone to lease.

In terms of taking on debt, it is just a fact that many people have to take on debt because they don’t really have any money to buy a car.  And having a car really is a necessity for most people, as it gets them to work and to the store.

In all of these scenarios, I think the key is that you should not be getting any more car (in terms of price) than what is practical.  If you are leasing, or buying new and taking on debt, then you should not be going beyond the basics of what you really need.  You don’t need leather seats and extra horsepower to get to work.  Most new cars today are pretty powerful as compared to the past.

So what if you do have car debt?  And what if you have some extra money lying around?  Does it make sense to pay it down or pay it off?

This is somewhat similar to the question about a home mortgage, but I actually think it is simpler and more feasible when it comes to a car loan.  Car loans are much lower than mortgages, and the terms of a car loan are far shorter – usually about five or six years as compared to a typical 30-year mortgage.

Let’s say you have 2 years left on a car loan with a balance of $10,000.  Let’s also say you happen to have $10,000 sitting in the bank.  In this scenario, it probably makes sense to just pay off the car loan.  You just want to make sure you have a little cushion in terms of an emergency fund.

I know some will argue that you shouldn’t pay down debt like this until you have six months of an emergency fund.  But in this scenario, you are wiping out your car payment.  If the monthly payment was $400 per month, then you just increased your cash flow each month by $400.  It should help you to build yours savings back up quickly.  And if you do have an emergency, at least you will be $400 better off each month.

Some will also argue that it depends on the interest rate.  While the interest rate is not irrelevant, I don’t think it should come into play that much.  Obviously if you have a zero percent rate, then you should probably just keep making the monthly payments since it is not costing you any interest at that point.

Even if your loan interest rate is 1.9%, it may still make it worth it to pay it off.  You aren’t going to earn that much interest in a bank account or money market fund these days.  Therefore, if you have the money sitting in a bank doing nothing, you might as well save yourself the little bit of interest on the car loan.

Of course, I say all of this with the premise that you have no other debt except a mortgage.  If you have credit card debt or student loan debt or something else, then that should probably take priority over your car debt.

If you are in a situation where you can pay down your car loan significantly but don’t have enough to pay it all off, then you are going to have to judge for yourself based on how secure you think your income is and whether you will need any of that money for an emergency.  If you have a $25,000 loan with $10,000 sitting in the bank, you should probably just keep the money in the bank.

If you have $10,000 in the bank and a $12,000 car loan, then you may just want to wait a couple of months until you can pay the whole thing off.  Again, you have to assess your own situation.

While paying off a car loan is not as big of an accomplishment as paying off a mortgage, it can still be liberating to a certain degree.  It is one way to increase your monthly cash flow.

The 20 House Republicans Who Opposed the Healthcare Bill

The U.S. House of Representatives recently passed a healthcare bill that essentially reforms Obamacare.  It cannot be said that it repeals and replaces Obamacare because there are still certain aspects of Obamacare that remain.

You can call it Trumpcare, or Ryancare or Obamacare lite, or whatever you want.  The fact is that it is not a full repeal of Obamacare as Trump and the Republicans have been promising for so long.  From a libertarian standpoint, it may or may not be a step in the right direction.

The bill is hard to understand.  In the words of Pelosi, I guess we will have to pass the bill to find out what is in it.  It does not have many of the market-oriented reforms that have been proposed by libertarians and even Rand Paul.  For this reason, I don’t even think the bill is a step in the right direction.  My guess is that it will have little impact in the price of health insurance premiums.

From a libertarian standpoint, we should generally seek repeal.  Take the income tax for example.  Some people support the so-called Fair Tax that would replace income taxes with a massive national sales tax.  It is said to be revenue neutral, which is the main reason libertarians should oppose it.  It replaces one bad thing with another bad thing.  We should seek to repeal the income tax.  If that is not achievable, then we should seek to at least lessen its burden.

The same goes with Obamacare.  I would rather see a partial repeal with nothing to replace it than replacing it with more government bureaucracy.  We seek a full repeal of Obamacare and then move on to repealing other federal regulations on healthcare.

Ironically, the one thing that Donald Trump stressed in his presidential campaign on healthcare was that we should allow health insurance to be sold across state lines.  This was his main thing, yet it is nowhere to be found.

When the latest bill passed the House, there were 20 Republicans who defected.  They defected for different reasons.  Some said that it would leave too many people vulnerable with inadequate health coverage.  In other words, there was opposition from the left-leaning Republicans.

There was also a little opposition from the libertarian-leaning Republicans.  While most of the Freedom Caucus had a change of heart and supported this bill, there were a few notable dissents who opposed the bill on more libertarian grounds.  Thomas Massie and Walter Jones – probably two of the best people in the House from a libertarian standpoint – opposed the latest bill.

Notably missing from the opposition was Justin Amash.  Amash has had some fighting words for Trump in the past, but he capitulated on this vote.  He was supposed to be the next Ron Paul of the House.  If anyone can live up to that mantle, I think it is either Thomas Massie or Walter Jones.  I don’t think it is Amash.

While there are more libertarian-leaning people in the House now than we have generally seen in the past, it is hard to compare anyone to the long and principled career of Ron Paul.  He really was one-of-a-kind in terms of politicians in Washington DC.

This latest healthcare bill may not pass the Senate.  Even if it does, I doubt it will do much good for the Republicans.  They may claim victory, and the Democrats will wail and complain about how many people will suffer, but the bottom line is that it doesn’t do enough to actually bring down health insurance premiums.

One of the main reasons Trump was elected was because he was seen as an advocate for the middle class.  People are struggling because they are forking over so much money for health insurance that is mostly useless.  If this continues, it is hard to see how Trump will get re-elected, unless the Democrats put up another corrupt or incompetent candidate again.

Even worse, if this bill prevents insurance companies from discriminating against pre-existing conditions as it is said to do, yet it doesn’t compel people to buy insurance, then it may just lead to even higher premiums and eventually bankrupt insurance companies.  This could be a faster ticket to fully nationalized healthcare than what exists with Obamacare.

FOMC Statement – May 3, 2017

The FOMC released its latest statement on monetary policy.  As expected, the Fed will not raise its target federal funds rate.

The elephant in the room is that growth in the U.S., at least as measured by GDP, has been abysmal.  The 2017 Q1 GDP growth came in at just 0.7%.

On this, the FOMC statement stated: “The Committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term.  Near-term risks to the economic outlook appear roughly balanced.”

Of course, you never read a statement that says, “we expect recessionary conditions within the next 12 months”, or something to that effect.

The biggest reason (one of many, admittedly) that got Donald Trump elected president will likely be the biggest reason that he doesn’t get re-elected in 2020.  The economy has been weak, and it is not showing any signs of improving.

Middle class America is hurting with bills and debt.  While unemployment rates have improved from 8 years ago, wages have been mostly stagnant.  Any increase in real wages has been more than eaten up by the skyrocketing health insurance premiums.

The Fed is content right now because the economy is puttering along and the Fed isn’t getting blamed too much.  Sure, libertarians blame the Fed, but that is nothing new, except for the size of the group.

The average American isn’t thinking about the damage done by the Federal Reserve when they are looking at their bank statement and wondering how they are going to pay their next credit card bill.  They may indirectly blame some politicians, but they don’t fully understand why.

The federal government is sucking up about $4 trillion out of the economy each year.  In addition, we are regulated to such a large degree that it literally costs us thousands of dollars (probably tens of thousands of dollars) each year in terms of our purchasing power.  The Federal Reserve enables the massive government spending and the continued deficits.  Without the Fed or a monopoly over the money, the federal government would be far more limited in its ability to spend.

Since consumer price inflation is relatively low, the Fed can sit back and say that it is doing its job.  It is meeting its mandate of maximum employment and 2 percent inflation.

This is very comparable to the disaster that was seen in 1929.  At that time, price inflation was also relatively low.  It was assumed that since consumer prices were tame that there was not bubble activity. It was assumed that the boom was not an artificial boom that could go bust.

If Trump had gotten into office and repealed Obamacare and drastically cut federal spending, along with some of the more burdensome regulations, then he might have some hope.  It probably would have led to some short-term pain, but at least he would have had some hope that the economy would be starting to prosper in 2020.

Instead, we have the continued red tape and the continued spending.  We also have Janet Yellen and company keeping its “accommodative” policy.  Actually, the Fed has not been expanding its balance sheet since October 2014, but keeping its target rate low helps to buy some time and put off the recession a little longer.

Trump would have been better off if Yellen and company had hiked its target rate and brought on the recession quicker.  If the inevitable is delayed and we get a recession in a year or two from now, I don’t think Trump is going to recover from it.  He has already been stupidly bragging about the economy and booming stock market.  If he is going to take credit for that now, he will surely have to take the blame when things go south.

The FOMC’s next meeting is June 13th and 14th.  This meeting is associated with a press conference by Yellen, making it more likely that the Fed could take some action.  My guess is that the Fed will not hike its target rate in June.

If Janet Yellen wants to keep her job, then she will probably do for Trump what seems like a favor in not hiking rates, or at least not quickly.  If I were Yellen, I wouldn’t want to stick around though.  What Bernanke went through in 2008, the Fed chair in the next term (starting in early 2018) may be facing something similar.